As a trustee, what information do you have to provide to beneficiaries?

October 20 2016

As a trustee, what information do you have to provide to beneficiaries?

Trustees are obliged to provide certain information to beneficiaries, but how much? This question has been a continuing source of frustration for trustees, especially those who find their discretionary decisions may be challenged. The Court of Appeal have recently clarified the nature and extent of this obligation, and the beneficiary’s corresponding rights.

The issue of beneficiaries’ rights in relation to trust property is controversial. If you’re a trustee and are uncertain about what you are required to disclose to beneficiaries, talk to a trust lawyer before you act.

The case that set the precedent...

Ivan Erceg, recently took his quest for disclosure of trust information to the Court of Appeal.[1] Ivan is the brother of the late Michael Erceg, the owner of Independent Liquor. He requested information relating to two trusts established by Michael Erceg, which had been wound up in December 2010. No distribution had been made to Ivan. When Ivan was discharged from bankruptcy he requested the trustees give him the documents about the winding up of the trust and distribution of the assets. The trustees refused this disclosure, being in the unenviable position of having to decide whether to give ammunition to a potential troublemaker. So, Ivan applied to the court for orders demanding extensive information. The High Court refused his application, and the Court of Appeal upheld this result.

The Court of Appeal observed there is no presumption for or against disclosure of trust information. As each case would be different, they would be determined by the facts.

The outcome for trustees...

The Court of Appeal’s ruling found the following factors should influence trustees’ decision-making when deciding what, if any, information should be disclosed to a beneficiary:

  • Issues of personal or commercial confidentiality
  • The nature of the beneficiary’s interest
  • The competing interests of the beneficiary seeking disclosure, and those of the trustees and the other beneficiaries
  • Whether disclosure can be made in full or in part
  • Whether safeguards are required on the use of information, for example, agreements about confidentiality
  • The effect of disclosure on family relationships and the relationship between the applicant and trustees
  • The nature and the context of the application for disclosure

When you should seek independent advice...

If your trust is large or needs to make significant decisions, it may be wise to get independent advice about disclosure. A trust lawyer can help with independent advice. Often agreement can be reached between the beneficiary and the trustee about appointing an independent person to consider the information that is to be disclosed. Trustees may also apply to the High Court for directions. However, consider this as a last resort as it can come at significant cost.

New legislation coming soon...

Beneficiaries’ rights to trust information have become so important the Law Commission proposes to address the issue in the new Trusts Act. The proposed legislation will create a presumption of disclosure to ‘qualifying beneficiaries.’ If trustees believe the settlor intended to give any beneficiary a realistic possibility of receiving trust property, these beneficiaries will qualify. Trustees will have to notify these beneficiaries they are beneficiaries of the trust. The proposed Act creates a presumption in favour of disclosure. The list of factors the trustees must consider when deciding whether, and to what extent, to disclose information is very similar to that laid out by the Court of Appeal in Erceg v Erceg.

The Supreme Court has granted leave for the Erceg case to be appealed.[2] However, depending on when a new Trusts Act is passed, the effect of the Supreme Court decision may be short-lived.

[1]    Erceg v Erceg [2016] NZCA 7; [2016] 2 NZLR 622

[2]    Erceg v Erceg [2016] NZSC 69


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